Uncertainty and choice: the challenges of pharmaceutical efficacy, safety, and cost

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Abstract

This paper addresses the role of uncertainty in challenges confronting the US pharmaceutical industry and its regulators. It begins with a macroeconomic overview, showing how rising health care costs, including rising ethical drug costs, squeeze the wage and salary share of national income. It addresses the claim that pharmaceutical companies' new drug pipelines are drying up. Taking a stochastic approach, it shows that both the trend of new medical entity approvals and the trend of pharmaceutical company gross margins can be explained as random walks—the latter as a result of sampling from a highly skew distribution. It then focuses on problems of ascertaining efficacy and especially low-probability adverse effects from clinical trial samples of acceptable size. Noting the need for post-NDA surveillance of adverse effects and observing the incentive failures that occur at that stage, it proposes two new approaches to identifying adverse reactions. Copyright © 2007 John Wiley & Sons, Ltd.

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